Section 3: Investment Options

3.01 – General

CBAF shall select investment options consistent with the purpose of the GRRSP.

CBAF recognizes that participants of the GRRSP have different tolerances for risk and different expectations for long-term returns. Some participants will view capital preservation as the most important objective, while others will strive to maximize investment returns.

Therefore, each participant will determine their own investment mix by selecting from a range of investment options with differing risk/return profiles. In developing and maintaining a suitable range of investment options, the diversity, liquidity and level of risk associated with each investment option shall be considered by CBAF within the context of all other investment options offered by CBAF.

3.02 – Selection of Investment Managers

The criteria used for selecting an investment manager shall be consistent with the investment and risk philosophy set out in Section 3.01 and shall include both quantitative and qualitative criteria. Any new investment option shall be considered in the context of the existing investment options to ensure each participant in the GRRSP is able to determine his or her own investment mix by selecting from a range of diversified styles and objectives.

The qualitative criteria shall include but are not limited to the following:

investment objectives and strategies of the investment options;

the stability of the organization and, specifically, the experience of the investment management team; and

the investment process utilized by the investment management team.

The quantitative criteria shall include but are not limited to the following:

the returns from the last five annual periods, as well as the three- and five-year annualized rates of return and if the fund has existed for ten years, the ten-year annualized rate of return;

annualized standard deviation over five years, which measures the variability of return (risk);

five year risk/return ratio; and

investment management fees.

Notwithstanding the above quantitative criteria, an investment option may be considered for selection without the requirements in subparagraphs (a), (b) or (c), if (i) the investment option’s mandate is within the new asset class that does not have the requisite history, or (ii) the investment option is new to the market place but managed by a portfolio manager or team that has a history managing a substantially similar mandate. In either case, CBAF shall ensure that the selection is based on a diligent review of the investment options.

3.03 – Number and Diversity of Investment Options

The investment options offered to participants in the GRRSP are outlined in Appendix A.

3.04 – Monitoring Investment Options

(a) General

CBAF shall monitor and review, at least semi-annually, the performance of the investment options offered to GRRSP participants relative to the benchmark set out in Subsection (b) below. In addition, the CBAF will review the performance of each investment option on a risk-adjusted basis and relative to a universe of similar investment options. Finally, a review of each investment manager’s stability, staff turnover, and consistency of style and record of service will be undertaken from time to time.

(b) Performance Measurement

Each investment option shall be tested on a semi-annual basis against the last five annual periods, as well as the three-, five- and ten-year annualized periods. The benchmarks for certain traditional asset classes are provided below and, where an investment option (e.g., balanced mandate, equity plus fund) does not strictly fit within the asset classes listed or where an alternative benchmark is requested by the CBAF, the benchmark shall be specified in Appendix A:

Investment Option

Benchmark

Money Market Funds

DEX 91-Day T-Bill

Bond Funds

DEX Universe Bond Index

Canadian Equity Funds

S&P/TSX Composite Index

U.S. Equity Funds

S&P 500 Index (C$)

International Equity Funds

MSCI EAFE (C$)

Global Equity Funds

MSCI World (C$)

(c) Performance Benchmarks and Watch-list Procedures

Investment options are expected to meet their performance benchmarks as identified immediately above. More specifically, each investment option will be measured against comparable alternative investment options and against its relevant market index benchmark, over moving annual and annualized three- and five-year periods, as well as a ten-year annualized period, if available.

If an investment option does not meet or exceed its benchmarks over three of the last five annual periods and meet or exceed the median manager in the asset class over a ten-year annualized period (five-year annualized period if a ten-year period is not available), the investment option will be placed on a watch-list maintained by the CBAF and in the form of the template provided in Appendix B. An investment option may also be placed on the watch-list for any material qualitative issues with respect to the criteria listed in Section 3.02 above. Any investment option that is on the watch-list will be reviewed at each subsequent meeting of the Board of Directors of CBAF to determine why it is not meeting the stated benchmarks and if further action is warranted. An investment option can be removed from the watch-list for one of the three reasons:

its performance changes so that it meets or exceeds its investment benchmarks;

CBAF understands why the investment option is not meeting or exceeding its stated benchmark and is comfortable that the investment option is still meeting the objectives for which it was chosen for; or

CBAF replaces the investment option.

(d) Review of Investment Options Platform

CBAF may, in the context of monitoring the investment options, request that Mercer conduct an investment options review within a specific asset class or for some or all of the investment option line-up. These reviews shall be conducted from time to time as CBAF deems prudent.

3.05 – Removing Investment Options

Reasons for considering the termination of an investment manager/option from the GRRSP include, but are not limited to, the following:

performance results which do not achieve stated benchmarks;

changes in the overall structure of the investment options offered to GRRSP participants such that the investment option is no longer required;

change in investment manager personnel, firm structure or investment philosophy that may adversely affect the potential return and/or risk level of the investment option being managed;

failure to adhere to the investment policy of the investment option being managed; and

failure to meet watch-list requirements.

A list of terminated investment options is provided in Appendix C, including the reason for terminating each investment option.